Riding An Extended Coal Rally

Buy FDG September 90 Calls (FDG IR)

PLAY: Buy the FDG September 90 Calls (FDG IR) at market, good for the week. Place a protective stop limit at $2.20 and implement our scaled-selling technique to lock in portions of your profits as these calls achieve 50% returns (and greater).

Dear Bottarelli Research Member,

First and foremost, I’d like to offer you a sincere and heartfelt “welcome aboard” to Bottarelli Research LEAPS!

I’m extremely excited to bring this powerful new options methodology to you, and I’m thrilled that you’ll be extending your investing journey with me as a new charter member to Bottarelli Research LEAPS!

As I explained in the introductory letter, this new service represents countless hours of research, back-testing, and real-time application, all in the effort to maximize the returns we can achieve with our weekly options plays.

I’m sure you’ve noticed that many of our Bottarelli Research Options plays move aggressively higher after issuing the sell signal and taking our money off the table. In terms of a daily options letter, there is nothing wrong with taking fast profits. But on the same hand, it’s also a smart idea to have a strategy in place that maximizes these returns as well. And that, my friends, is what you now have with Bottarelli Research LEAPS.

The foundation for this powerful new methodology came from studying the wealth-building secrets of the Swiss. Using our “Scaled-Selling Technique,” we now have pre-set profit targets at 50%, 100%, 200%, and so on. This way, you always know exactly when to sell off portions of your position for profits, while also letting the remainder of your position ride for further upside. This powerful technique allows you to lock in strong gains without letting the threat of greed cloud your judgment. In my experience, there simply is no better way to walk this fine line between risk and reward. My mother always used to tell me that you can’t have your cake and eat it too. I beg to differ.

Here’s the game-plan: Over the course of our journey together, we’ll begin to establish longer-term options positions in some of the strongest companies within the strongest market sectors. These positions could last anywhere between 3 months to 24 months — and they could come in companies engaged in extended upside rallies or in companies that are currently bottoming out and looking to rebound.

For the next few issues, I plan on using the recent market weakness (which began in January of 2008) to methodically and carefully add upside calls on sectors that I feel will experience bullish tendencies for the rest of the 2008 calendar year and beyond. These powerful sectors include — are you ready? — engineering, coal, steel, agriculture, heavy machinery, fertilizer, oil and oil service, specialty metals, gold, dry bulk shipping, railroads, international telecommunications, virtually every Chinese and Brazilian play, technology, solar power, nuclear energy, oil refiners, biotech, energy, natural gas, brokerage, global infrastructure, environmental protection, credit cards, and defense/aerospace. And that’s just not even the full list.

As it stands right now, our current LEAPS ledger contains the following open positions. In addition to being listed on the Positions page of the Members Area, these will also be included at the bottom of your weekly e-mail alerts.

• Petroleo Brasileiro January 90 Calls (PMJ AR): My favorite international oil play.
• Entergy January 140 Calls (ODF AH): My top “nuclear acceptance” play.
• America Movil January 2009 70 Calls (OXZ AN): Playing a downside “gift gap” in the top international telecom.
• Hovnanian January 2010 12.50 Calls (YZX AV): Playing a housing recovery by 2010.

POSITION BUY PRICE NOTE: The entry prices on all four of these positions reflect the buy prices as of Wednesday morning, the date that Bottarelli Research LEAPS launched. All four plays are currently open, and PBR and ETR in particular are already well on their way to hitting the first 50% profit target.

In the weeks that follow, we’ll begin adding more longer-dated positions on top companies in the market’s top performing sectors. And we’ll begin today by adding a new LEAPS position in coal. Specifically, we’re going to play September calls on Fording Canadian Coal Trust (FDG – NYSE).

The argument here is quite simple. Starting on May 12^th, virtually every market sector has experienced weakness. In fact, the Dow has dropped over 700 points since then, and coal stocks have not only withstood this selling pressure, but they continue to appreciate! Over the last four weeks, Fording Canadian Coal Trust has gained 20.7%. And as you can see from the chart below, the stock is an absolute model of even and consistent price appreciation. In terms of the world’s most majestic wonders, you have the Grand Canyon, the Pyramids of Egypt, and a stock chart that looks like this — not necessarily in that order!

Like the chart argument, it’s also hard to argue against coal. After all, the global demand for coal is rising, and it’s really as simple as that. According to the U.S. Department of Energy, China and India will account for 70% of the world’s coal consumption increases over the next two decades, and this demand is not about to stop anytime soon. Roughly 66% of the world’s coal is used to fuel electrical plants and the remainder goes into steel and concrete production. That makes coal a global play on energy and infrastructure.

From an investing perspective, coal supplies are falling. That’s why China (the largest producer of coal in the world) is no longer coal self-sufficient. You see, China needs coal to sustain its economy, and it has the money to pay for any price increases. Therefore, the case for longstanding coal growth is easy to grasp. Plus, new coal production projects are not likely to have an impact on global supply until at least 2010. That means we have a two-year opportunity for growth in the share price values of publicly-traded coal companies.

In terms of Fording Canadian Coal Trust, they’re a Canadian open-end mutual fund that holds a 60% interest in Elk Valley Coal — a producer and seller of metallurgical coal used by integrated steel mills. They also control six operating coal mines in southeast British Columbia and northern Vancouver. FDG has enjoyed its current coal contract rates running as high as $275 per ton. Compare that to the $93 per ton charged in 2007, and the incredible year over year coal price increase is clear as day. This makes it easy to predict that shares of FDG will hit $100 by Q4 of 2008. Therefore, let’s go ahead and add longer-dated FDG calls to our LEAPS portfolio now!

PLAY: Buy the FDG September 90 Calls (FDG IR) at market, good for the week. Friday’s major market sell-off offers us a great opportunity to pick up these calls for an attractive entry price. Place a protective stop limit at $2.20 and implement our scaled-selling technique as these calls achieve 50% returns and greater.

Sincerely,